RIYADH: Saudi Arabia and the UAE are expected to continue leading the Middle East’s sustainable bond market, after posting $16.7 billion in issuances in the first nine months of 2024.
A report from US-based credit rating agency S&P Global noted that the value of sustainability bonds offered to the market from January to September fell 18 percent compared to the same period of 2023.
The analysis highlighted that while sustainable bond issuances in the region surged in the first half of this year, they dropped in the third quarter.
This decline was attributed to higher interest rates and a normalization following the COP28 halo effect in November 2023.
A view of the Saudi capital, Riyadh, with it’s Financial District that has the PIF Tower HQ. Shutterstock
“The UAE and Saudi Arabia will likely continue leading the region’s sustainable bonds issuances, despite increased activity elsewhere. Sustainability bonds lead the share of issuance, as more banks fuel issuances,” said S&P Global.
Saudi Arabia’s Public Investment Fund was the first sovereign wealth fund globally to issue sustainable bonds, raising $3 billion through a multi-tranche green bond in 2022 and a larger $5 billion offering in 2023.
In its latest Allocation and Impact Report, PIF stated it allocated $5.2 billion of the $8.5 billion raised to environmentally focused projects as of June 2024.
Reflecting on the decline in issuance in the three months to the end of September, S&P Global said: “In the first two quarters of 2024, sustainable finance activity in the region improved better sequentially compared with global trends. However, this changed in the third quarter, where activity was muted despite continued bond issuances in the region.”
According to the report, sustainable bond issuance in the Middle East may be needed to accelerate the implementation of net-zero policies, alongside increased alignment with sustainability strategies and regulatory reforms.
The US-based firm also noted that issuance of these financial products in the region is sensitive to economic growth, inflation, and interest rates.
PIF stated it allocated $5.2 billion of the $8.5 billion raised to environmentally focused projects as of June 2024. Shutterstock
Sustainable sukuk outlook
The report further indicated that the total volume of sustainable sukuk globally reached $7.1 billion in the first nine months of 2024, down 11 percent compared to the same period last year.
In the Middle East, the total sustainable sukuk volume reached $6.1 billion in the same period, relatively unchanged from a year earlier.
Green sukuk, which are Shariah-compliant investments in renewable energy and environmental assets, have gained traction as markets shift toward sustainable financing.
S&P Global added that the share of sustainable sukuk in the region continues to increase, constituting close to 35 percent to 40 percent of sustainable bond issuances so far in 2024, compared to 25 percent to 30 percent by the end of 2023.
In September, another report from Moody’s projected that the issuance of these sustainable Islamic finance products will accelerate in the coming months as Middle Eastern countries roll out energy transition plans and renewable targets.
It also noted that sustainable sukuk appeal to both Islamic and conventional investors seeking to execute sustainable investing strategies.
